Small Meat Processors BUSINESS PLANNING GUIDEBOOK NMPAN 1 APRIL 2011 AUTHORS Lauren Gwin Niche Meat Processor Assistance Network (NMPAN) Oregon State University Arion Thiboumery Niche Meat Processor Assistance Network (NMPAN) Lorentz Meats Iowa State University* Debra Garrison Agricultural Consultant Nick McCann National Center for Appropriate Technology (NCAT) Appropriate Technology Transfer for Rural Areas ACKNOWLEDGMENTS Support for this guide was provided by the U.S. Department of Agriculture, Rural Development, and eXtension, a national initiative of the combined land-grant university system. NMPAN is a small meat processors community of practice within eXtension www.extension.org Additional thanks to вЂў our reviewers for their significant improvements to this guide вЂў NMPANвЂ™s Advisory Board В© Niche Meat Processor Assistance Network This guide may be reproduced in its entirety for informational, noncommercial purposes. Otherwise, no part of this guide may be excerpted, reproduced, or utilized in any other form, by any means: electronic, mechanical, photographic or a recording, nor may it be stored in a retrieval system (e.g., on a website), transmitted or otherwise copied for public use without prior written permission from: Niche Meat Processor Assistance Network 213 Ballard Extension Hall Oregon State University Corvallis, OR 97331 This publication may be downloaded online as a free PDF from www.nichemeatprocessing.org *publishing university Table of CONTENTS INTRODUCTION....................................................................................................................................... 2 HOW TO USE THIS GUIDE...................................................................................................................... 3 5 SECTION 1вЂ”Brief Introduction to Business Plan Components...................................... 7 SECTION 2вЂ”ABC Meats Business Plan, Piece by Piece...................................................... 7 Executive Summary................................................................................................................... Business Description............................................................................................................... Business Mission and Strategy............................................................................................... Markets and Competition......................................................................................................... Marketing Plan......................................................................................................................... 9 10 11 13 16 Financials................................................................................................................................. 17 Appendices................................................................................................................... Appendix 1...................................................................................................... 18 22 Appendix 2...................................................................................................... 24 Appendix 3...................................................................................................... 24 Appendix 4...................................................................................................... 24 Appendix 5...................................................................................................... Appendix 6....................................................................................................... 25 SECTION 3вЂ”Considerations for Other Plant Configurations................................................. 27 SECTION 4вЂ”Business Planning Assistance/Resources............................................................ 36 SECTION 5вЂ”A Final Word................................................................................................................... 37 1 INTRODUCTION INTRODUCTION This guidebook walks you through creating a business plan for a small meat processing facility. The example used is a real business plan, written by an existing small processor to obtain bank financing for a significant expansion and retooling of his business. Names and other identifying details have been changed for confidentiality. What is a business plan? A business plan is a living document in which you clearly state the goals of your planned business venture, provide reasons that these goals are achievable, and outline your plan to achieve your goals. When does a processor need a business plan? To put it another way, when do you not need a business plan? Answer: when you can afford to fail. Unless youвЂ™re planning a meat processing business as a hobby, you need a business plan. Your banker will require projections of revenue and cash flow with concrete information to back up these numbers. At a minimum your business plan is for your bank. But your business plan is also for you. It can be daunting to put a business plan together. But the process of planning your business вЂ” trying to figure out how it will work and whether youвЂ™re going to make money вЂ” is essential. Admittedly, almost no business runs exactly as a business plan projects. But it is far better to lose money on paper than to lose money in real life. What is your plant going to cost? How many employees do you need, and how much can you afford to pay them? What prices will you charge? Where will the livestock come from, and how do you know theyвЂ™re coming? These are all questions you need to answer before you take out a $1 to 2 million loan and start paying it back every month for 25 years. Putting together a business plan shows you are serious about starting or expanding and have thought through the process. What is not covered in this guide? This guide does not cover all the different regulations relevant to building and operating a processing facility. It is critical to understand the regulations at the federal, state, and local levels before you finalize your plans. Make sure you understand the pros and cons of different types of inspection (federal, state, custom-exempt, retail-exempt: see www.extension.org/pages/Meat_Inspection for definitions and distinctions) so you select the right one for your business. You will also need to understand and comply with local, state, and federal regulations regarding zoning and local planning, water quality, waste management, environmental health, food safety records and documentation, humane handling, pest control, product labeling, and others. 2 Small Meat Processors Business Planning Guidebook HOW TO USE THIS GUIDE To build or not to build? Proceed with caution. Meat processing facilities вЂ“ like many manufacturing facilities вЂ“ can be very expensive to build and operate. Many start-up businesses fail financially in the first few years. Even when the closest inspected slaughter and/or processing facility seems too far away, building an entirely new plant, mobile or fixed, may not be the most cost-effective solution. Livestock producers considering building a meat processing facility may first want to evaluate the options and costs of pooling livestock for shared transportation to existing inspected facilities and use less-than-load (LTL) shipping to get the meat back. Remodeling an existing plant may also be possible; the business plans in this guide can be adapted to that type of project as well. Still, in some cases вЂ“ and more so in the future as older plants complete their useful lifespan вЂ“ it will make sense to build a new facility. HOW TO USE THIS GUIDE This guide has five sections: 1вЂ”Brief introduction to business plan components 2вЂ”Business plan, piece by piece, from a real processor, with comments 3вЂ”Considerations for other plant configurations 4вЂ”Other business planning resources 5вЂ”A final word Section I lists and briefly describes the basic components of a business plan. Section 2 walks through the business plan for a specific meat processing business, a custom-exempt slaughter and processing facility proposing to build a new building three times its current size, become USDA-inspected, and expand its retail operation. In each part of this business plan, you will find questions you need to answer and suggestions for finding information to answer those questions. The example business plan used in this guide is not presented as a masterpiece of business plan writing. It is a basic business plan that worked вЂ“ the processor was able to convince his banker to make the loan. This business plan, however, on its own, was not the only reason the bank chose to make the loan. The processor had a solid track record with his bank: he was known as a responsible borrower. The banker was familiar with this kind of business and may have needed less detail than another banker with less understanding of meat processing. Other contextual factors may have played a role. Yet you can be sure that if the processor had not presented his bank with a clear business plan, the bank would have said no. A busy small business owner can put together a business plan without spending money on high-dollar consultants or putting in endless hours of extra work on the side. Simple and clear are just fine. 3 HOW TO USE THIS GUIDE If you are planning a completely new business, it will help you to outline all the steps involved from receiving a live animal to sale of product to the final customer (e.g., slaughter, fabrication, value-added processing, packaging, labeling, marketing, sales, and distribution). While your business may handle only a small portion of that supply chain, itвЂ™s a good idea to understand the full picture so you can see how you fit and the needs of your supply chain partners. In Section 3, you will see how your plan may change for two alternative plant configurations: first as a custom-exempt facility and, second, by adding an inspected mobile slaughter unit. Section 4 lists other useful resources for business planning. Section 5 concludes the guide with a few final thoughts on planning this kind of business. 4 Small Meat Processors Business Planning Guidebook SECTION 1вЂ”BRIEF INTRODUCTION TO BUSINESS PLAN COMPONENTS SECTION 1вЂ”Brief Introduction to Business Plan Components Funders вЂ“ whether a bank or an investor вЂ“ want your business plan to answer these questions: вЂў Is the business idea solid? вЂў Is there a sufficient market for the product or service? вЂў Are the financial projections realistic, and do they fit the funderвЂ™s typical loan expectations? вЂў Is key management experienced and capable? вЂў What competition exists? вЂў Does the plan clearly describe how funders will get their money back? Most business plans have the sections listed below. The order in which they appear is not set in stone. However, you may find it helpful to identify your target market, your competition, and your strategic goals before you describe your marketing plan. Executive Summary: this is a concise (one page at most) overview of your entire plan. Business Description: includes a description of the business, products, and services; company locations and facilities; and management and labor; Business Mission and Strategy: includes your mission statement, strategic goals and objectives, and financing needs, with exit plan if needed; Markets and Competition: includes industry trends/analysis, competitive analysis, and SWOT (strengths, weaknesses, opportunities, and threats) analysis; Marketing Plan: includes the overall marketing strategy, pricing strategy, target markets and market segments, promotion and distribution strategies, and sales projections; and Financials: includes assumptions and summary of information Some business planning experts advise a SWOT analysis for the business as a whole: there may be issues beyond markets and competition that will determine whether starting or expanding a processing plant is a good or bad move. The full-business SWOT can help you get at that question. Appendices: вЂў Financial reports, historic and projected (balance sheet, cash flow, income statement) вЂў Management team вЂў Other information referenced in the plan (e.g., lists of competitors, вЂў regional data that affects your market) You may spend months preparing your plan, but lenders or investors may spend five minutes reviewing it. They will typically look at it in this 5 SECTION 1вЂ”BRIEF INTRODUCTION TO BUSINESS PLAN COMPONENTS order: Executive Summary, Financials, Management, and the Competitive Analysis; some investors also will want an exit plan that tells them how theyвЂ™ll get their money back. DonвЂ™t be offended by this: it is typical. And donвЂ™t think that the rest of your plan is not important. It is. Remember, your business plan is not only for your bank. It also helps you get your thoughts and vision in order so you can carry out your plan. 6 Small Meat Processors Business Planning Guidebook SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE SECTION 2вЂ”ABC Meats Business Plan, Piece by Piece At the time this business plan was written, ABC Meats was a custom-exempt processing facility providing processing services to livestock producers and game hunters. The facility also had a small retail counter. The new proprietor of ABC Meats has worked there for many years and recently purchased the business with a combination of equity (he sold his cattle herd) and a bank loan. He now wishes to expand the retail operation, build a new building three times the size of the existing one, and become USDA-inspected. He estimates he needs just over $2 million to do all this. He plans to ask his local bank for a 20-year loan of $1.6 million. The remaining $400,000 will come from his own equity and, if possible, from private investors. One advantage of private investment capital is that it does not require monthly debt service, as will a bank loan; however, he must make sure that the cost of private capital does not compare unfavorably with the cost of bank financing. EQUITY Money you or others put into the business as business owners. SUBORDINATED DEBT Debt that is formally subordinated to your bank loan. If you cannot pay back your bank loan, the bank will be first in line to take your assets. For each piece of the following business plan, you will find a statement of what it should contain, guidance for the section, and what ABCвЂ™s plan says. Side boxes throughout the guide define terms and suggest how ABC might have improved its plan. EXECUTIVE SUMMARY The Executive Summary gives the high points of the plan and ties everything together in less than one page. It includes a brief description of the business, both current and proposed; a brief summary of the market analysis and business opportunity; and a simple, clear statement of what the business seeks in financing along with what assets and equity or subordinated debt will be part of the financial package. Guidance for this section This Summary should only include information that is already in your plan - no new information. Think of this as the five-minute version. What are the highlights and important points in the plan that youвЂ™d want to tell someone вЂ“ a lender, an investor, a potential management employee вЂ“ if you only had five minutes with that person? 7 SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE WHAT THE ABC MEATS PLAN SAYS To capitalize on rising interest in local meats, ABC Meats intends to build a new, federally-inspected, red meat processing facility, 8000 sq. ft., including retail space for specialty meat products. ABC Meats has been in business for 50 years at the same location and has traditionally served livestock producers and hunters with custom slaughter and meat cutting services operating under USDAвЂ™s custom exemption and retail exemption. ABC has developed an award-winning line of specialty jerky, hams, and small diameter cooked sausages that are manufactured for custom and retail customers. According to a recent Businessweek article, consumers are paying increased attention to the food they eat (December 2009). This has led to more demand for small-scale inspected meat processors than ever before (New York Times March, 26, 2010). Locally produced meat products differ from products sold through national and international markets because of their local, artisanal flavor, and personal relationships that a local meat processor can afford to have with customers. Recent food scares about meat from both domestic and international sources have increased customer interest in small regional meat processing businesses. Local meat processors currently operating have an opportunity to expand their business by creating personal relationships with their customers and differentiating their products based on local quality and uniqueness. Of critical importance in any value added local food market is sufficient infrastructure to meet demand. ABC Meats intends to capture part of this local market trend by acquiring federal inspection for slaughter and processing and by expanding its facility to increase capacity and expand wholesale and retail sales of specialty meats. ABC Meats seeks $1.6 million in long-term financing to cover start-up costs, equipment, building expenses, and working capital for this expansion. ABC is willing to invest its own capital and use current operation assets and personal assets as collateral. 8 Small Meat Processors Business Planning Guidebook CUSTOM EXEMPT Slaughter facilities may offer processing services to the owner of an animal for direct return to the owner, his or her employees, and non-paying guests. Typically ownership may be divided among up to four families. RETAIL EXEMPT Facilities may sell inspected meat directly to consumers; some wholesaling is allowed of products that require cooking (e.g., fresh sausage), up to an annual dollar amount (roughly $50,000). SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE BUSINESS DESCRIPTION This part describes the current business including location(s), type of facilities, products and services, and key personnel. It also describes the planned facility and how it will be different and/or expanded from the current business. If you are starting a new business, use this section to describe what you are planning and the people and knowledge that will make your new venture a success. Guidance for this section You should know all the following information. You also will want to include your current throughput (how many head per species per week, month, or year) and your current number of employees (and how this number will change with the expansion). Note how ABC MeatsвЂ™ plan has various subsections to make it easier to find specific information. Your funders also may find it useful in this section to read a brief story of why you decided to develop this specific business venture. This adds a personal touch to the business plan. WHAT THE ABC MEATS PLAN SAYS: Business Description Business Description, Products, and Services ABC Meats is a small meat processor with more than 50 years of business experience at the same location. The company has traditionally served local livestock producers and hunters with custom slaughter and meat cutting services. It also manufactures an award-winning line of specialty meats, including jerky, hams, and small diameter cooked sausages, for custom and retail customers. ABC Meats currently operates under USDAвЂ™s custom exemption and retail exemption. Company Locations and Facilities ABCвЂ™s current facility is located on Main Street in downtown OurTown. It is licensed as a custom slaughter and retail exempt meat processing facility and is 2,000 sq. ft. in size. The planned new facility will be 8,000 sq. ft. and located outside the city limits to provide for greater livestock handling capacity with fewer disturbances to the local populace. This expanded capacity will be essential for increasing processing income through better customer service вЂ” for example, a larger cooling space to accommodate different hang times based on customer preferences. Management John Sharp, President: Mr. Sharp is the current owner and president of ABC Meats. He has more than 25 years in both meat processing and retail management. His experience includes work with Giant Value and Tesco, in both meat cutting and management functions. Jane Edge, Operations Manager: Ms. Edge has been with ABC Meats for more than five years and is fully versed in company operations. She has been instrumental in implementing improved record keeping and production practices. 9 SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE BUSINESS MISSION AND STRATEGY This part includes the mission statement, strategic goals and objectives вЂ“ what you actually hope to accomplish вЂ“ and financing needs (this last item is sometimes called the start-up summary, for start-up businesses). Guidance for this section Again, you should know all the information in this section. This is the place for you to state what you want to do. The financial needs information should be based on good estimates for costs that you have received from contractors and suppliers. You will need to develop building designs or blueprints to get good estimates for construction costs. Many larger contractors will include design drafting as part of their construction services package. Goals usually refer to a general direction you want to go, while objectives usually lay out how you will accomplish the goals. This section also could include a description of supply chain partners and a short list of keys to success. If you are approaching private funders, such as venture capitalists, you will probably need an exit plan to tell investors how they will get their money back. WHAT THE ABC MEATS PLAN SAYS: Business Mission and Strategy Mission Statement Our goal at ABC Meats is to give you the very best product and customer service so that we may earn your trust and future business. Strategic Goals вЂў Acquire federal inspection for slaughter and processing; вЂў Expand the retail and wholesale business for specialty jerky, ham, and sausage products by using networks already developed by the local вЂњBuy Fresh, Buy LocalвЂќ Initiative; вЂў Attract additional ranchers to use our slaughter, custom cut, and wrap services by making them aware of additional market opportunities from expanded retail sales; and вЂў Expand the capabilities of the facility to meet new demand. Strategic Objectives вЂў Increase retail sales to $500,000 over 3 years; вЂў Increase revenue from the custom slaughter business to $1,019,000 through expanded capacity and adding federal inspection over 3 years; вЂў Repay new bank loans within 20 years. 10 Small Meat Processors Business Planning Guidebook MISSION STATEMENT A short statement about what your company is and what it does. If you also include a vision statement, it should convey key points about the business that will help guide decisions. An OBJECTIVE should be SMART: Specific Measurable Achievable Relevant Time-bound A GOAL requires DRIVE: Directional Reasonable Inspiring Visible Eventual CASH FLOW Money in and out of your business checkbook, usually examined on a monthly basis. Cash flow is calculated before accounting for depreciation and revenue taxes (if any); it is real cash in-hand. You always want more cash coming in than going out. SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE TABLE 1. FINANCING NEEDS (or вЂњEXPANSION COSTвЂќ or вЂњSTART-UP SUMMARYвЂќ) START-UP CAPITAL CAPITAL EXPENDITURES As an existing business with some proprietor capital to invest, ABC Meats has chosen not to include additional start-up capital in its financing needs (see Table 1). SOURCES OF FUNDS *Building and Cooler Facility $1,720,000 Proprietor Investment $409,160 Sewer and Water $10,000 Bank Loan $1,596,640 Site Work Allowance $200,000 Total Sources of Funds $2,005,800 Land (4 acres) $70,000 Cutting Tables $1,800 Shelving & Racks $4,000 Total Capital Expenditure $2,005,800 *ABC Meats had recently purchased a new sausage stuffer and smokehouse, so did not anticipate a significant equipment investment with the expansion. MARKETS AND COMPETITION This is the place for industry trends/analysis, competitive analysis, and a SWOT analysis (strengths, weaknesses,opportunities, and threats). It can be tempting to focus this section on вЂњbig pictureвЂќ market trends, but keep that part short. The competitive analysis is much more important to your banker and/or investors. They will buzz right through industry trends and analysis. They want to know who your competitors are and how you plan to compete against them. However, start-up capital is likely to be critical for a completely new business because your business will start with full expenses вЂ” full-time employees, full mortgage payment вЂ” but not full revenues. Start-up cash is needed to get you off the ground. Most new businesses lose money for a certain period of time as they build up sufficient business to achieve positive cash flow. One of your financial goals should be to have a positive cash flow within 6 to 12 months. Guidance for this section Who are your competitors? Are other processors near you that offer similar services? This information often can be collected from a listing of meat plants in your state that is usually kept by the state department of agriculture. Many business plans refer to reports by industry associations or professional research companies. While helpful, these are usually not necessary. Once you find out who your competitors are, find out more about how they do business. Consider visiting their plants and/or websites. Finding information about a business helps you learn which products and services it offers and what it charges for those products and services. You can also learn background information about prospective customers and suppliers. Keep in mind that small processors are usually all in the same boat. While you need to analyze nearby processors as competition for your business plan, day to day they may well be a source of help when youвЂ™re in a pinch вЂ“ for example, you run out of casings in the middle of the day or you need help with your smokehouse for a new product. Based on the experience of other small processors, it can be better to look at nearby processors as knowledgeable neighbors rather than competition. Even so, your funders will want to see how you will compete for business with them. 11 SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE WHAT THE ABC MEATS PLAN SAYS: Markets and Competition Sales Trends in the Small Meat Processing Industry Long a mainstay of rural communities, small meat processing facilities provide services that are both needed and profitable. This is especially true in OurState, where there are many independent livestock producers and a long history of direct sales of bulk вЂњfreezer meatвЂќ to household consumers. Consumer awareness of and interest in local and regional foods has been expanding in recent years. Local meat processing businesses are uniquely positioned to take advantage of both longpresent demand and emerging market opportunities. Industry Analysis Small meat processing businesses exist in a competitive niche that overlaps several markets. Typical custom meat processors process animals from livestock producers within the region. Processors compete with each other on price, speed of service, quality, and specialty sausage recipes. Also, processors with retail space compete with local retailers for retail meat business. Processors do not compet with food retail establishments strictly on price but on product quality and uniqueness. Lastly, some inspected processors have developed value added products, sold wholesale to grocers and restaurants. In the wholesale business, processors must typically compete with national and regional distributors and processors. Market Analysis The regional market for OurTown includes A, B, C, D, and E counties. According to 2007 agricultural census data, these five counties represent significant production in hogs, beef cattle, and dairy, as shown in Appendix 3. Farms with livestock are typically in need of significant local processing capacity for local marketing of meat products, as well as cull cattle and hogs. They represent a significant market for custom meat processing services. Deer hunting is also a popular pastime in the region. Processors enjoy a highly profitable deer-processing season during the fall and winter. In addition to the slaughter and processing business, meat processors in OurState also have had success with on-site retail markets. As stated above, the uniqueness, quality, and relationship offered by local meat processors have proven attractive to consumers. Appendix 4 lists plants that have successfully expanded their retail operations within the last five years and are now highly profitable. Competitive Analysis Because this region supports a large and vibrant livestock industry, there are a number of meat processors in the area dedicated to providing custom slaughter and specialty meat products and services to the five-county area mentioned above. Within the custom slaughter segment, all the meat processors listed in Appendix 5 are competitors. However, within the retail segment, none of these processors currently provides significant retail capacity with the exception of 123 and XYZ Lockers. 123 is almost a two hour drive from OurTown and XYZ is almost a one hour drive from OurTown. Neither are significant competitors in the retail arena based on distance. They will, however, compete in the inspected slaughter and processing arena. 12 Small Meat Processors Business Planning Guidebook Some custom processors in ABCвЂ™s region are open only for deer season and deer processing. SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE TABLE 2. SWOT ANALYSIS INTERNAL EXTERNAL STRENGTHS High quality specialty meat products that have been recognized throughout OurState OPPORTUNITIES Expanded custom processing and speed of service High levels of customer service, including flexible hang times that local competitors do not provide WEAKNESSES Limited current wholesale accounts No customers using slaughter services for resale in retail and restaurant establishments Inspected slaughter opens up opportunities for OurTown and local livestock producers to market meat to retail and restaurant establishments THREATS 123 Locker, a federally inspected plant, and XYZ Locker, a state inspected plant, will be competitors for inspected slaughter and processing MARKETING PLAN Include the overall marketing strategy, pricing strategy, target markets and market segments, and strategies for both promotion and distribution. Guidance for this section Understanding your customers is essential to your success. You need to know who they are, where they are, what they want, and what they can afford. Most importantly, you have to know that there are enough of them to support your business. Before you begin to research your target market, it is important to narrow the market definition even more by identifying the particular market segment you want to reach. That will give you good information for planning your marketing to reach customers effectively. A banker or investor will want to see evidence of demand for your products and services. For example, a strong piece of evidence for the processing service side of the business would be letters of commitment from producers stating that they will bring in a certain average number of livestock over the year (and especially during specified months). To help get evidence like this, consider working with trade associations, such as regional or local cattlemen groups, pork producer groups, and other livestock producer associations or farmer groups. (Remember that stated demand and actual demand are two different things.) A third-party analysis of local demand for your products and services also can be valuable and potentially more persuasive than anecdotal evidence. Regarding retail sales, a good place to start looking for target market data (information about people living in your local area and/or region who would buy what youвЂ™re selling) is the U.S. Census Bureau (www.census. gov) and SperlingвЂ™s Best Places (www.bestplaces.net); both are free and provide detailed demographic information for both cities and counties. Try not to be overwhelmed by what could quickly be an information overload. Retail sales depend on the number of people who come to your business, so the number of people who live in your area will naturally affect this. There is a joke that you can sell anything in New York CityвЂ™s Times Square because there are so many people there, the odds are good that someone walking by will buy the thing, whatever it is. TARGET MARKET A set of people, defined by specific characteristics (for example: their location, income level, family size), that you believe are your most likely potential customers. MARKET SEGMENT A subset of the target market, also defined by specific characteristics. The universe of potential customers can be divided into almost limitless market segments. But you will choose only a few segments to focus on: these are your target markets. 13 SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE Similarly, it may be an expensive decision to open a retail store far away from potential customers without first considering how you will attract customers to your business. While the ABC Meats plan does not go into great detail in this area, some demographic items to look for are: вЂў Overall population size вЂ“ how many people live near your business? вЂў Household income вЂ“ this suggests how much money people in your вЂў вЂў target market may have at their disposal to spend on your product(s) вЂў and how much they may be able or willing to pay. вЂў Population age вЂ“ families with children tend to spend more than other вЂў people on groceries. Elderly people donвЂ™t tend to spend as much on вЂў groceries. However, these two groups also may buy different types вЂў of products: families may buy more ground beef while the elderly вЂў may buy more filets. And while the elderly may not spend as much вЂў in total, they may have the ability/desire to purchase more expensive вЂў items. вЂў Local traffic flows вЂ“ how many people drive by your business вЂў location (or proposed location) every day? Your state Department вЂў of Transportation may have information about this for free. вЂў What ethnic groups live in your area? If you make a lot of specialty вЂў Norwegian sausage and there are a lot of people of Norwegian вЂў descent in your area, that would be a good thing to note in your вЂў marketing plan. Such people would be good likely customers вЂў because of the products you make. You would also want to note вЂў how you might focus your marketing efforts toward this group вЂў (for this Norwegian example, perhaps through Lutheran church вЂў newsletters, local Sons of Norway groups, or local ethnic festivals). You also can often find associations serving people who might be interested in your local, specialty meat products such as вЂњBuy Fresh Buy LocalвЂќ organizations and Community Supported Agriculture (CSA) groups. Community gardens and/or cooking classes can also be good sources. The existence of such local groups provides support for the idea that people in your area are interested in local and specialty food products. Regarding wholesale marketing, what retail stores and restaurants exist in your area that might be good business partners for you? Note these in your plan, and include letters of support from them if possible. It would also be good to include retail sales information for these establishments, as both competitors and as indicators of the types of food products people are buying in your area, and at what prices. The data in this section for the sales projection table should match up with your cash flow projections. Bottom Line: DonвЂ™t get bogged down with this section. Do your best, and your lenders and/or investors will tell you if they need more information. 14 Small Meat Processors Business Planning Guidebook ABC Meats claims there is significant demand for inspected processing but provides no data to back it up. A potential funder might argue that most customers are satisfied with custom-exempt processing (e.g., for on-the-hoof/freezer meat sales) and would want more evidence of enough demand for inspected processing to sustain the business. Anecdotal evidence could help. For example, вЂњABC has received dozens of requests for inspected slaughter and processing services on a monthly basis, from producers wishing to process between 10 and 1000 head per year.вЂќ SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE Compared to other business plans, ABC MeatsвЂ™ Marketing Plan is relatively thin on details, but it was acceptable to ABC MeatsвЂ™ banker. This is likely because it was an existing business. A start-up looking for funding would almost certainly have needed to provide more detail. WHAT THE ABC MEAT PLAN SAYS: Marketing Plan Overall Strategy: The overall marketing strategy for the next three years is to continue to grow and improve the slaughter and processing business, while expanding the retail and wholesale parts of the business. The planned new facility will be federally inspected, so the number of prospective customers will be significantly higher. For an existing business, a monthly log of the business you have had to turn down because you are too busy is also strong evidence. Target Markets and Market Segments: ABC Meats will target qualityconscious consumers looking for specialty meats that are not available through typical grocery channels. ABC will also target local restaurant and bar establishments interested in differentiating themselves from their competition through higher quality food for a reasonable price. Lastly, ABC will target larger retail grocery establishments where locally produced specialty products have been growing in popularity. Pricing Strategy: ABC Meats products and services are currently priced higher than competitors in the immediate region. This is because ABC competes not on price, but on flexibility, the quality of services and products, and the availability of specialty, value added products. ABC demonstrates flexibility through its willingness to do different hang times based on customer preferences. This has attracted customers interested in the superior taste and quality of beef hung 10 to 14 days. Also, as mentioned above, ABC Meats has several award winning, further-processed meat products that keep customers coming back. AGING BEEF ABC Meats prefers 10 to 14 days of aging, but this is just one opinion. The effects of aging vary. For most people, aging beef 7 to 10 days will result in adequate tenderness, desirable flavor, and only modest meat weight loss. Aging meat for longer periods can reduce shelf life for fresh products. Promotion Strategy: ABC Meats will promote its products and services to customers through: Regular newspaper advertisements focusing on retail products; Promotional flyers and radio announcements to advertise increased processing capacity, retail products, and speed of service; and Direct sales to local and regional restaurants, wholesale, and retail establishments. Distribution Strategy: Primary distribution of meat products will be through the new proposed retail counter and slaughter facility. Secondary distribution of wholesale specialty meat products will be through local deliveries. Slaughter and further fabrication operations will continue to function as before, with customers bringing animals for slaughter and picking up finished cuts and further processed meat products. Customers will have the options of custom-exempt or inspected slaughter, depending on their needs. 15 SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE Sales Projections: Retail sales will start when the facility is built and fully stocked. Sales forecasts, presented in Table 2, are based on experiences of similar retail expansions of meat processors in small towns in other parts of the state with similar demographics and competition and may be considered conservative. TABLE 3. SALES FORECASTS FOR NEW FACILITY YEAR 1 YEAR 2 YEAR 3 RETAIL $100,000 $300,000 $500,000 WHOLESALE $25,000 $35,000 $45,000 SLAUGHTER AND PROCESSING $861,028 $925,530 $1,019,605 TOTAL $986,028 $1,260,530 $1,564,605 FINANCIALS What goes here? Include the assumptions underpinning the cash flow statements and historical financial statements, both of which are in the appendices to your plan. Guidance for this section Potential investors will closely examine your cash flow and historical financial statements. In this section, you must explain and defend every assumption you used to make the cash flow projections as well as anything in your historical data that could be a red flag. For example in ABC MeatsвЂ™ plan, this sectionвЂ™s first paragraph explains why profitability fell in 2009 and implies that it was not the consequence of poor management. Think of your assumptions as a summary of your financial statements that give enough detail to guide the reader through the statements. If you are starting a new business, you have to make more assumptions than an existing business because you have no track record. You will want to take extra care in explaining your assumptions and backing them up. WHAT THE ABC MEAT PLAN SAYS: Financials The following are the assumptions behind the forward-looking cash flow statements included in Appendix I. Also, lower profitability in 2009 (see Appendix II for historical financial statements) is due to (a) one-time cash expenditures for consulting fees aimed at improving the recordkeeping and productivity of the business and (b) increases in labor expenditure to take on expanded business. If not for these costs, profitability would have increased. 16 Small Meat Processors Business Planning Guidebook In your version of this table, include not only the dollar amounts but the percent increase from year to year that they represent. That makes your projections even clearer to potential funders. For example, ABC Meats estimates that slaughter and processing revenue will increase 7 percent from year 1 to year 2 and an additional 10 percent by year 3. SECTION 2вЂ”ABC MEATS BUSINESS PLAN, PIECE BY PIECE Assumptions вЂў Sales increases are based on sales figures of similar facilities located вЂў in similar communities throughout OurState. вЂў Negative cash flow in the months of April and May are due to the вЂў seasonal nature of meat processing. вЂў Principal and interest payments are based on current payments to вЂў CitizenвЂ™s Bank and additional payments for: $1,596,640 bank note 6.5 percent annual interest rate 240 periods of payment вЂў Unit variable costs increase proportional to sales, including: Ingredients Raw materials Packaging вЂў Because a new facility with new equipment is considerably more вЂў efficient, only 40 percent increases for utilities, wages, and payroll вЂў expenses are projected. A 50 percent increase in insurance expense вЂў is assumed for the new facility. Repairs and maintenance will be вЂў static because equipment and facility are new. вЂў Officer wages are static; they are flexible depending on the needs вЂў of the business. APPENDICES This is the place to put your full cash flow projections and historical financial data (income statements from the last two or three years). Put additional supporting materials into appendices, to keep the main body of your plan short and to the point. For example, you may list primary management personnel in the body of the plan, but if you want to list the rest of your team and their talents, do that in an appendix. ABCвЂ™s plan has six appendices, listed below. Appendix 1 Appendix 2 Appendix 3 Appendix 4 Appendix 5 Appendix 6 Obtaining financial information from other processors will help support your assumptions. Projected Cash Flow Statements, Years 1, 2, 3 Historical Financial Data USDA Livestock Inventory Statistics for Six County Area Six County Area Competitive Landscape Meat Processor Expansions in the Last Five Years Management and Employees The cost and revenue categories included in ABCвЂ™s cash flow projections may need to be adjusted to fit your business, but these give you a comprehensive start. This assumption will hold only for the first several years. These cash flow tables are available online as templates, with instructions. Go to www.nichemeatprocessing.org>Tools for Businesses>Business Planning. 17 18 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $658 $751 $685 $918 $65,892 $4,139 $33 $11,166 $23,096 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $65,412 $4,122 $33 $11,929 $11,929 $0 Legal and Accounting Vehicle Expense Replacement Tools Telephone Advertising Office Expense Utilities Insurance Expense Rent Travel Supplies Other Services Repairs and Maintenance TOTAL GENERAL EXPENSE (Cash Out) Principal Payment Taxes CASH AVAILABLE CASH FORWARD $109 $204 $0 $109 $204 $90 Property Taxes Laundry License $74 $9,179 $471 $74 $9,196 $471 Dues and Subscriptions Interest Expense Contract Labor $2,724 $22,639 $2,339 $2,724 $22,639 $2,339 Officer Wages Hourly Wages Payroll Expense YEAR 1 $10,908 $1,483 $6,558 $10,949 $1,488 $6,582 $11,929 FEBRUARY $70,814 $8,333 $2,083 MONTH 2 GENERAL EXPENSES (Cash Out) Raw Materials Ingredients Packaging $0 JANUARY $71,079 $8,333 $2,083 ABC Meats Cash Receipts from Processing Cash Receipts from Retail Cash Receipts from Wholesale Cash Available (Start Up Operating Capital) MONTH 1 YEAR 1: MONTHLY CASH FLOW $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $71,834 $4,157 $33 $19,366 $42,462 $1,313 $204 $0 $109 $74 $9,161 $471 $2,724 $22,639 $2,339 $13,962 $1,898 $8,393 $23,096 MARCH $84,973 $8,333 $2,083 MONTH 3 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $55,985 $4,175 $33 -$4,297 $38,165 $0 $204 $0 $109 $74 $9,143 $471 $2,724 $22,639 $2,339 $5,604 $762 $3,369 $42,462 APRIL $45,479 $8,333 $2,083 MONTH 4 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $54,026 $4,193 $33 -$11,424 $26,740 $0 $204 $0 $109 $74 $9,125 $471 $2,724 $22,639 $2,339 $4,487 $610 $2,697 $38,165 MAY $36,410 $8,333 $2,083 MONTH 5 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $70,453 $4,211 $33 $20,644 $47,384 $0 $204 $0 $109 $74 $9,107 $471 $2,724 $22,639 $2,339 $13,954 $1,897 $8,388 $26,740 JUNE $84,923 $8,333 $2,083 MONTH 6 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $62,689 $4,229 $33 $1,253 $48,637 $0 $204 $0 $109 $74 $9,089 $471 $2,724 $22,639 $2,339 $9,495 $1,291 $5,708 $47,384 JULY $57,787 $8,333 $2,083 MONTH 7 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $66,120 $4,247 $33 $5,777 $54,413 $0 $204 $0 $109 $74 $9,071 $471 $2,724 $22,639 $2,339 $11,480 $1,560 $6,901 $48,637 AUGUST $65,759 $8,333 $2,083 MONTH 8 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $73,368 $4,265 $33 $19,909 $74,322 $0 $204 $0 $109 $74 $9,053 $471 $2,724 $22,639 $2,339 $15,664 $2,129 $9,416 $54,413 SEPTEMBER $87,159 $8,333 $2,083 MONTH 9 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $72,521 $4,284 $33 $18,082 $92,404 $0 $204 $0 $109 $74 $9,034 $471 $2,724 $22,639 $2,339 YEAR 1 $15,186 $2,064 $9,129 $74,322 OCTOBER $84,502 $8,333 $2,083 MONTH 10 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $67,151 $4,302 $33 $6,292 $98,696 $0 $204 $0 $109 $74 $9,016 $471 $2,724 $22,639 $2,339 $12,106 $1,645 $7,277 $92,404 NOVEMBER $67,361 $8,333 $2,083 MONTH 11 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $79,749 $4,321 $33 $31,096 $129,791 $0 $204 $0 $109 $74 $8,997 $471 $2,724 $22,639 $2,339 $19,369 $2,633 $11,644 $98,696 DECEMBER $104,782 $8,333 $2,083 MONTH 12 $3,501 $2,087 $834 $6,713 $5,067 $33,439 $18,764 $3,900 $658 $9,011 $8,224 $11,013 $805,200 $50,644 $393 $129,791 $1,313 $2,453 $90 $1,304 $884 $109,171 $5,650 $32,692 $271,671 $28,073 $143,164 $19,460 $86,065 $861,028 $100,000 $25,000 ANNUAL APPENDIX 1вЂ”Cash Flow Statements Year 1 ABC MEATS: YEAR 1 MONTHLY CASH FLOW Small Meat Processors Business Planning Guidebook $14,668 $1,994 $8,818 $2,724 $22,639 $2,339 $471 $74 $8,978 $109 $204 $90 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $71,654 $4,340 $33 $37,185 $37,185 GENERAL EXPENSES (Cash Out) Raw Materials Ingredients Packaging Officer Wages Hourly Wages Payroll Expense Contract Labor Dues and Subscriptions Interest Expense Property Taxes Laundry License Legal and Accounting Vehicle Expense Replacement Tools Telephone Advertising Office Expense Utilities Insurance Expense Rent Travel Supplies Other Services Repairs and Maintenance TOTAL GENERAL EXPENSE (Cash Out) Principal Payment Taxes CASH AVAILABLE CASH FORWARD $2,917 $0 Cash Receipts from Wholesale Cash Available (Beinning Period) $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $658 $751 $685 $918 $72,108 $4,358 $33 $36,393 $73,579 $22,639 $2,339 $471 $74 $8,960 YEAR 2 $14,613 $1,986 $8,785 $2,724 $2,917 $37,185 $84,976 $25,000 FEBRUARY JANUARY $85,295 $25,000 MONTH 2 MONTH 1 Cash Receipts from Processing Cash Receipts from Retail ABC Meats YEAR 2: MONTHLY CASH FLOW $109 $204 $0 $1,313 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $75,916 $4,377 $33 $43,185 $116,764 $22,639 $2,339 $471 $74 $8,941 $16,439 $2,235 $9,882 $2,724 $2,917 $73,579 $95,594 $25,000 MARCH MONTH 3 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $55,085 $4,396 $33 $13,881 $130,645 $22,639 $2,339 $471 $74 $8,922 $5,214 $709 $3,134 $2,724 $2,917 $116,764 $45,479 $25,000 APRIL MONTH 4 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $52,102 $4,415 $33 $4,743 $135,387 $22,639 $2,339 $471 $74 $8,902 $3,508 $477 $2,109 $2,724 $2,917 $130,645 $33,376 $25,000 MAY MONTH 5 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $74,529 $4,435 $33 $44,459 $179,846 $22,639 $2,339 $471 $74 $8,883 $16,429 $2,233 $9,877 $2,724 $2,917 $135,387 $95,539 $25,000 JUNE MONTH 6 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $65,391 $4,454 $33 $23,050 $202,896 $22,639 $2,339 $471 $74 $8,864 $11,180 $1,520 $6,721 $2,724 $2,917 $179,846 $65,011 $25,000 JULY MONTH 7 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $66,750 $4,473 $33 $26,288 $229,184 $22,639 $2,339 $471 $74 $8,844 $11,974 $1,628 $7,198 $2,724 $2,917 $202,896 $69,628 $25,000 AUGUST MONTH 8 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $72,712 $4,493 $33 $40,328 $269,512 $22,639 $2,339 $471 $74 $8,825 $15,417 $2,096 $9,268 $2,724 $2,917 $229,184 $89,649 $25,000 SEPTEMBER MONTH 9 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $71,876 $4,513 $33 $38,412 $307,924 $22,639 $2,339 $471 $74 $8,805 YEAR 2 $14,947 $2,032 $8,985 $2,724 $2,917 $269,512 $86,917 $25,000 OCTOBER MONTH 10 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $66,589 $4,532 $33 $26,048 $333,972 $22,639 $2,339 $471 $74 $8,786 $11,915 $1,620 $7,163 $2,724 $2,917 $307,924 $69,286 $25,000 NOVEMBER MONTH 11 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $77,173 $4,552 $33 $50,941 $384,913 $22,639 $2,339 $471 $74 $8,766 $18,019 $2,449 $10,832 $2,724 $2,917 $333,972 $104,782 $25,000 DECEMBER MONTH 12 $1,304 $2,453 $90 $1,313 $3,501 $2,087 $834 $6,713 $5,067 $33,439 $18,764 $3,900 $658 $9,011 $8,224 $11,013 $821,885 $53,340 $393 $384,913 $271,671 $28,073 $5,650 $884 $106,476 $154,321 $20,976 $92,772 $32,692 $35,000 $925,530 $300,000 ANNUAL APPENDIX 1вЂ”Projected Cash Flow Statement Year 2 ABC MEATS: YEAR 2 MONTHLY CASH FLOW 19 20 $16,438 $2,234 $9,882 $2,724 $22,639 $2,339 $471 $74 $8,746 $109 $204 $90 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $74,495 $4,592 $33 $36,068 $36,068 Other Services Repairs and Maintenance TOTAL GENERAL EXPENSE (Cash Out) Principal Payment Taxes CASH AVAILABLE CASH FORWARD JANUARY $94,772 $16,667 $3,750 $0 ABC Meats Cash Receipts from Processing Cash Receipts from Retail Cash Receipts from Wholesale Cash Available (Beg. Period) GENERAL EXPENSES (Cash Out) Raw Materials Ingredients Packaging Officer Wages Hourly Wages Payroll Expense Contract Labor Dues and Subscriptions Interest Expense Property Taxes Laundry License Legal and Accounting Vehicle Expense Replacement Tools Telephone Advertising Office Expense Utilities Insurance Expense Rent Travel Supplies MONTH 1 YEAR 3: MONTHLY CASH FLOW Small Meat Processors Business Planning Guidebook $685 $918 $74,937 $4,613 $33 $35,252 $71,320 YEAR 3 $16,376 $2,226 $9,845 $2,724 $22,639 $2,339 $471 $74 $8,726 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $658 $751 FEBRUARY $94,418 $16,667 $3,750 $36,068 MONTH 2 $685 $918 $79,127 $4,633 $33 $42,841 $114,161 $18,422 $2,504 $11,075 $2,724 $22,639 $2,339 $471 $74 $8,705 $109 $204 $0 $1,313 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 MARCH $106,216 $16,667 $3,750 $71,320 MONTH 3 $685 $918 $54,013 $4,653 $33 $7,196 $121,357 $4,733 $643 $2,845 $2,724 $22,639 $2,339 $471 $74 $8,685 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 APRIL $45,479 $16,667 $3,750 $114,161 MONTH 4 $685 $918 $51,302 $4,674 $33 -$2,216 $119,142 $3,184 $433 $1,914 $2,724 $22,639 $2,339 $471 $74 $8,665 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 MAY $33,376 $16,667 $3,750 $121,357 MONTH 5 $685 $918 $77,734 $4,694 $33 $44,110 $163,251 $18,412 $2,503 $11,068 $2,724 $22,639 $2,339 $471 $74 $8,644 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 JUNE $106,154 $16,667 $3,750 $119,142 MONTH 6 $13,418 $1,824 $8,067 $2,724 $22,639 $2,339 $471 $74 $8,603 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 $751 $685 $918 $69,018 $4,736 $33 $23,994 $207,655 $751 $685 $918 $67,493 $4,715 $33 $20,409 $183,661 AUGUST $77,364 $16,667 $3,750 $183,661 MONTH 8 $12,529 $1,703 $7,532 $2,724 $22,639 $2,339 $471 $74 $8,624 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 JULY $72,234 $16,667 $3,750 $163,251 MONTH 7 $751 $685 $918 $75,700 $4,757 $33 $39,537 $247,192 $17,277 $2,348 $10,386 $2,724 $22,639 $2,339 $471 $74 $8,582 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 SEPTEMBER $99,610 $16,667 $3,750 $207,655 MONTH 9 $751 $685 $918 $74,764 $4,778 $33 $37,416 $284,607 YEAR 3 $16,750 $2,277 $10,070 $2,724 $22,639 $2,339 $471 $74 $8,561 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 OCTOBER $96,574 $16,667 $3,750 $247,192 MONTH10 $751 $685 $918 $68,841 $4,799 $33 $23,728 $308,335 $13,352 $1,815 $8,027 $2,724 $22,639 $2,339 $471 $74 $8,540 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 NOVEMBER $76,984 $16,667 $3,750 $284,607 MONTH11 $751 $685 $918 $80,703 $4,820 $33 $51,285 $359,620 $20,193 $2,745 $12,139 $2,724 $22,639 $2,339 $471 $74 $8,519 $109 $204 $0 $0 $292 $174 $70 $559 $422 $2,787 $1,564 $325 $0 DECEMBER $116,424 $16,667 $3,750 $308,335 MONTH12 $9,011 $8,224 $11,013 $848,127 $56,464 $393 $359,620 $171,084 $23,255 $102,849 $32,692 $271,671 $28,073 $5,650 $884 $103,599 $1,304 $2,453 $90 $1,313 $3,501 $2,087 $834 $6,713 $5,067 $33,439 $18,764 $3,900 $658 $1,019,605 $200,000 $45,000 ANNUAL APPENDIX 1вЂ”Projected Cash Flow Statement Year 3 ABC MEATS: YEAR 3 MONTHLY CASH FLOW APPENDIX 1вЂ”How do I come up with all these numbers? How do I come up with all these numbers? While overwhelming at first sight, this process is very do-able, and you donвЂ™t have to be a math geek. Use the revenue, cost of goods (COGs), and expense categories used by ABC Meats as a starting place, and add or remove categories as needed. If your plant will be bigger than about five employees, the following modifications are recommended: 1. With revenue, separate basic processing (slaughter and fabrication), from further processing (sausage and cured meat production). Put ground meat production into whichever work area holds the grinder and does the packaging. 2. The revenue categories for each work area, or вЂњdepartment,вЂќ should also have a corresponding COGs category. You want to be able to track the money that comes in from each processing area versus the money that goes out. 3. Make sure that employee wages and associated expenses (taxes and benefits) are put under COGs in your chart of accounts AND are broken down according to the departments suggested above. ABC Meats has wages as an вЂњExpense.вЂќ However, if ABC organized revenue and COGs into departments, it could better track if each department is maintaining profitability. For example, breaking down into departments would show you if youвЂ™re making all your money from cutting beef and pork, and losing money on making bologna and curing ham. You will not see this if you have only one revenue category and one COGs category for your whole business. You will see whether or not you are making money, but you will have no idea where it is coming from. Even if you have fewer than five employees, charting your accounts this way will allow you to better accommodate departments if/as you grow; this approach gives you a more realistic sense of вЂњgross profit,вЂќ profit before accounting for overhead costs. If you have employees who work in more than one department, allocate their wages on an average percentage basis. For example, your employee Joe Smith works on average, over the year, 50 percent of his time in cutting and 50 percent of his time making sausages. Count JoeвЂ™s wages 50 percent in basic processing and 50 percent in further processing. An average for the year or every six months is fine, unless that employeeвЂ™s duties change significantly. DonвЂ™t let precision get in the way of accuracy. Be sure to work some seasonality into your monthly modeling. Many plants in the northern parts of the United States run slower in the months of February through April or May and are really busy in the fall. Not sure how much revenue to expect? Take your expected volume and multiply by the prices you hope to charge. If youвЂ™re losing money on paper, rethink your plans. ItвЂ™s generally better to find more volume than to raise prices; raising prices tends to make volume go down. Of course, cutting costs is also an option, but cost cutting reduces what you can actually do, so be careful not to cut costs too much. Run your numbers by smart people and tell them to ask hard questions. Remember, it is much less painful to lose money on paper than in real life. While no financial model will ever be 100 percent accurate, a model that is as realistic as possible, and a bit conservative, can help you avoid big mistakes with real money. 21 APPENDIX 2вЂ”HISTORICAL FINANCIAL DATA ABC MEATS: HISTORICAL FINANCIALS INCOME STATEMENT 2008 (Accrual Basis) INCOME STATEMENT 2009 (Accrual Basis) ORDINARY INCOME/EXPENSE ORDINARY INCOME/EXPENSE INCOME INCOME Processing Income 464,062.70 Processing Income 538,619.67 Locker Rent Income 36.00 Merchandise Income 2,934.59 Miscellaneous Income 6,123.00 Locker Rent Income 1,182.00 Miscellaneous Income 936.21 TOTAL INCOME 470,221.70 TOTAL INCOME 543,672.47 COST OF GOODS SOLD COST OF GOODS SOLD Cost of Merchandise 73,570.51 Cost of Merchandise 86,902.95 Ingredients 9,290.91 Ingredients 12,592.54 Packaging 49,730.40 Packaging 53,920.22 Total COGS 132,591.82 Total COGS 153,415.71 GROSS PROFIT 337,629.88 GROSS PROFIT 390,256.76 EXPENSE 30,076.87 Wages - Officer 32,692.25 Wages 164,742.41 Wages 194,050.95 Payroll Tax Expense 15,682.59 Payroll Tax Expense 20,052.27 Contract Labor 6,615.25 Contract Labor 5,650.00 Dues and Subscriptions 470.00 Dues and Subscriptions 884.00 Depreciation Expense 9,062.00 Interest Expense 6,575.81 Amortization Expense 917.00 Property Taxes 668.00 Education 275.00 Insurance Expense 12,509.77 Interest Expense 5,180.85 Laundry 2,490.82 Property Taxes 530.00 License 89.50 Insurance Expense 14,389.15 Legal and Accounting 1,313.20 Laundry 2,154.31 License 134.50 Office Expense 5,106.35 Legal and Accounting 5,897.00 Repairs and Maintenance 9,629.61 Office Equipment Expense 551.32 Rent Expense 3,600.00 Office Expense 3,269.95 Supplies 9,441.48 Refunds 338.34 Small Tools 2,087.12 Repairs and Maintenance 8,647.01 Advertising and Promotion 6,897.03 Rent Expense 3,300.00 Donations 1,177.00 Supplies 6,163.12 Travel Expense 658.72 Small Tools 704.55 Telephone Expense 838.13 Advertising and Promotion 8,295.26 Utilities 22,691.81 Donations 375.00 Vehicle Expense 3,689.67 Travel Expense 343.02 Bank Service Charges 32.10 Meals and Entertainment 69.29 Postage and Delivery 75.21 Telephone Expense 901.95 Consultant Fees 33,000 Utilities 23,571.72 Miscellaneous Expense 12,303 Vehicle Expense 4,084.74 Bank Service Charges 27.70 Miscellaneous Expense 3,058.98 TOTAL EXPENSE 319,828.88 TOTAL EXPENSE 388,704.35 17,801.00 NET INCOME 1,552.41 NET INCOME 22 EXPENSE Wages - Officer Small Meat Processors Business Planning Guidebook APPENDIX 2вЂ”HISTORICAL FINANCIAL DATA ABC MEATS: HISTORICAL FINANCIALS BALANCE SHEET 2008 BALANCE SHEET 2009 ASSETS ASSETS CURRENT ASSETS CURRENT ASSETS Checking/Savings 19,151.31 Checking/Savings -1,438.70 Accounts Receivable 23,169.80 Accounts Receivable 24,537.53 Other Current Assets 24,779.90 Other Current Assets 24,779.90 TOTAL CURRENT ASSETS 67,101.01 TOTAL CURRENT ASSETS 47,878.73 Fixed Assets 116,918.31 Fixed Assets 127,511.31 Other Assets 14,083.00 Other Assets 14,083.00 TOTAL ASSETS 198,102.32 TOTAL ASSETS 189,473.04 LIABILITIES LIABILITIES CURRENT LIABILITIES CURRENT LIABILITIES Accounts Payable Other Current Liabilities 15,932.83 Accounts Payable 8,577.22 43,343.47 Other Current Liabilities 57,479.36 TOTAL CURRENT LIABILITIES 59,276.30 TOTAL CURRENT LIABILITIES 66,056.58 Long Term Liabilities 109,323.02 Long Term Liabilities 92,356.08 TOTAL LIABILITIES 168,599.32 TOTAL LIABILITIES 158,412.66 EQUITY 29,503.00 EQUITY 31,060.38 198,102.32 TOTAL LIABILITIES and EQUITY 189,473.04 TOTAL LIABILITIES and EQUITY STATEMENT OF CASH FLOW 2008 STATEMENT OF CASH FLOW 2009 OPERATING ACTIVITIES NET INCOME OPERATING ACTIVITIES 17,801.00 NET INCOME -1,557.38 ADJUSTMENTS to reconcile NET INCOME to NET CASH provided by operations: ADJUSTMENTS to reconcile NET INCOME to NET CASH provided by operations: Accounts Receivable -23,169.80 Accounts Receivable -1,367.73 Inventory -24,779.90 Accounts Payable -7,355.61 Accounts Payable 14,582.83 Federal/FICA Withholdings -392.90 Federal/FICA Withholdings 4,209.14 State Income Tax Withholdings 24.33 State Income Tax Withholdings 574.00 FUTA Liability -115.81 FUTA Liability 238.27 SUTA Liability 416.62 Loan from Officer 8,322.06 Loan from Officer 1,003.65 Notes Payable Citizen's State Bank 30,000.00 Employee Advances 200.00 Note Payable CitizenвЂ™s State Bank 13,000.00 NET CASH provided by Operating Activities 6,969.93 NET CASH provided by Operating Activities 27,777.60 INVESTING ACTIVITIES INVESTING ACTIVITIES Equipment -125,980.31 Equipment -10,593.00 Equipment Accumulated Depreciation 9,062.00 NET CASH provided by Investing Activities -10,593.00 Covenant Not to Compete -10,000.00 Goodwill -5,000.00 Accumulated Amortization 917.00 NET CASH provided by Investing Activities -131,001.31 FINANCING ACTIVITIES FINANCING ACTIVITIES Note Payable Citizen's State Bank 105,442.70 Note Payable Citizen's State Bank -11,676.62 Note Payable Citizen's State Bank 5,230.32 Note Payable Citizen's State Bank -5,290.32 Capital Stock 11,702.00 NET CASH provided by Financing Activities -16,966.94 NET CASH provided by Financing Activities 122,375.02 NET CASH increase for period -20,590.01 NET CASH increase for period 19,151.31 Cash at beginning of period 19,151.31 CASH AT END OF PERIOD 19,151.31 CASH AT END OF PERIOD -1,438.70 23 APPENDIX 3вЂ”USDA LIVESTOCK INVENTORY STATISTICS FOR FIVE COUNTIES HOGS CATTLE and CALVES (incl. dairy) County A 87,017 55,246 County B 182,309 81,051 County C 219,213 46,892 County D 255,138 61,468 County E 221,401 32,495 APPENDIX 4вЂ”SUCCESSFUL MEAT PROCESSOR EXPANSIONS IN THE LAST FIVE YEARS NAME CITY NearTown Meats NearTown JaneвЂ™s Meat Processing NearTown OurTown Smokehouse OurTown APPENDIX 5вЂ”FIVE-COUNTY AREA COMPETITIVE LANDSCAPE 24 NAME CITY COUNTY TYPE JoeвЂ™s Butcher Shop OurTown OurCounty State Inspected JaneвЂ™s Meat Processing NearTown NearCounty Federally Inspected Smith Processing & Grocery NearTown NearCounty Custom Exempt NearTown Meats NearTown NearCounty State Inspected OurTown Smokehouse OurTown OurCounty Custom Exempt Small Meat Processors Business Planning Guidebook APPENDIX 6вЂ”MANAGEMENT AND EMPLOYEES APPENDIX 6: ABC MEATS MANAGEMENT AND EMPLOYEES John Sharp, President After managing ABC Meats for five years under previous ownership, Mr. Sharp purchased the company in February of 2008 and has managed the company effectively for the past 20 months. Mr. Sharp held positions with retail and food processing companies for 25 years prior to joining ABC Meats. He gained valuable retail experience as Manager of Meat, Seafood, and Deli departments for three years at a Wal-Mart Superstore. He was instrumental in developing award-winning products for ABC Meats, working with personnel at OurState University and OurState Cattle Association. He has successfully managed sales and marketing responsibilities for major retail and wholesale food service companies. Mr. Sharp provides the training, leadership, and direction to employees at ABC Meats and is working with key personnel to develop the management team to carry the company to greater levels of revenue, profitability, and prosperity. He is dedicated to meeting and exceeding customer expectations. His commitment to developing new products and services is instrumental in attaining the goals he has set for the company and the employees. Mr. Sharp will be responsible for compliance with food safety regulations. Jane Edge, Operations Manager Ms. Edge has been with ABC Meats for the past five years. She is a highly motivated manager, who is well versed in all functions of the company operations. She is responsible for scheduling activity in the processing department and assists Mr. Sharp with overseeing cutting operations. Through the years, she has acquired experience in training, directing, and supervising personnel at ABC Meats. She is highly motivated and continues to take on additional management responsibilities. Ms. Edge understands the importance of maintaining high levels of efficiency and productivity necessary to meet commitments made to customers. Through her leadership by example, the staff responsible to her is successful in meeting the challenges of demands made by customers for quality products and services and timely delivery of orders. Annie Accountant, Bookkeeper (contract) Ms. Accountant is currently providing bookkeeping services on a contract basis for ABC Meats. She has worked as a bookkeeper for the past 10 years with a variety of clients and is highly experienced in accounting and financial reporting. Working closely with Mr. Gable, she provides information to all levels of management to assist them in the management of the company. Annie is prepared to join the staff of ABC Meats as soon as the facilities are available and the circumstances permit. 25 APPENDIX 6вЂ”MANAGEMENT AND EMPLOYEES Joseph Jones, Harvest Manager Mr. Jones is responsible for harvesting animals as they are received from customers. Mr. JonesвЂ™s expertise in harvesting animals allows company meat cutters to get the most usable product possible from each carcass. Jim Smith, Bob Ray, and Sandra Dee, Department Lead Personnel These three individuals are key employees in the cutting and processing departments and have experience and expertise in their respective crafts. They are candidates for managerial positions as the company grows and develops a need for additional managers. Jim has been with the company for nine years; Sandra five years; and Bob three years. These key employees are dependable and play a significant role in providing excellent customer service and ensuring consistent quality. 26 Small Meat Processors Business Planning Guidebook SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS SECTION 3вЂ”Considerations for Other Plant Configurations Of course, not all processing plants are the same; this section discusses some thoughts for alternative configurations. For example, what if you are planning a custom-exempt facility instead of an inspected one? You probably wonвЂ™t build the plant any differently, because youвЂ™ll still need to satisfy federal, state, and local building and sanitation requirements. But you wonвЂ™t need to allocate staff time to HACCP compliance, so your labor costs might be lower in your financials. Your marketing plan will change, because youвЂ™ll have a different kind of customer for your processing services. But custom-exempt processors can still have retail counters, as long as the meat sold retail comes from inspected carcasses, so your marketing plan for retail might stay about the same. Similarly, what if you arenвЂ™t planning a retail space? Just cut out the parts of your plan and financials that have to do with selling meat: the extra space, equipment, and staff, and the marketing plan demographics in relation to retail sales. YouвЂ™ll still need to convince your banker that there is enough demand for your slaughter and processing services. In that sense, you still need a plan to вЂњmarketвЂќ your services to livestock producer вЂњcustomers.вЂќ Finally, what if an inspected mobile slaughter unit (MSU) is part of your plan? MSUs have been around, as custom-exempt operations, for a long time. Many custom-exempt processors have a truck they drive to a farm to harvest an animal for the farmerвЂ™s household use and carry it back to a stationary cut and wrap facility. However, USDA- and state-inspected MSUs are relatively new. The first USDA-inspected MSU began operations only 10 years ago. An MSU could be part of a meat processorвЂ™s business plan in various ways: An existing processor wants to add inspected slaughter capacity as an MSU, rather than adding or expanding a kill floor in an existing fixed facility; A group of livestock producers lacking access to inspected slaughter builds an MSU and cooperates with an existing inspected cut and wrap facility to do the processing; That same group of producers builds and operates both an MSU and a fixed, cut and wrap facility; A large ranch builds and operates an MSU and cut and wrap for use by that ranch only. 27 SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS Business plans that include an MSU are similar, in many ways, to other processor business plans, with a few modifications. YouвЂ™ll need to answer the following questions: Ownership: Will the MSU be owned and operated by the same entity or different entities? If different, what will be their formal and fiscal relationship? Cut and wrap: Is it possible to cooperate with an existing inspected cut and wrap facility? If so, what will be the formal and fiscal relationship? If not, how will the cut and wrap aspect of processing be addressed? Offal/water disposal: What will be required by the states/counties/local jurisdictions where the MSU will operate? If the MSU is required to collect and dispose of the waste water/offal off-site, how and where will that happen? Capacity: What is the maximum amount of livestock that can be processed in a given time based on available inspection hours and travel time? The start-up summary, cash flow projections, and profit/loss statements for a plan including an MSU will be a bit different than those for a fixed facility, largely due to some differences in necessary equipment. A sample start-up summary for an MSU вЂ“ not including the cut and wrap facility вЂ“ is in the table below. These figures are based on a real MSU. Read on for sample MSU cash flow projections, profit/loss statements, and financial assumptions/explanations. START-UP SUMMARY FOR A MOBILE SLAUGHTER UNIT EQUIPMENT Mobile slaughter unit $200,000 Tractor truck $26,000 Cell phone, laptop $680 Unit equipment $5000 MATERIALS Office supplies $200 Hide tags $30 USDA stamp $350 Fees 28 Dept. of Motor Vehicles $1200 Organic certification (optional) $350 Business license, permits $300 Insurance $1200 TOTAL START UP $235,310 Small Meat Processors Business Planning Guidebook $0 $26,063 $249,037 Cash Disbursements ENDING CASH BALANCE $270,100 Cash Receipts -$2,106 $5,000 $23,957 $17,357 $15,251 $26,063 $21,063 NET CASH FLOW Opening Cash Balance $0 $17,357 $0 Owner's Draw $0 $249,037 $0 Investor Dividend Payments $0 $7,719 $7,719 $0 $0 $0 TOTAL CASH DISBURSEMENTS $0 $9,638 $231,680 $0 $9,638 Income Tax Payments Loan Payments Capital Purchases Commissions/Returns & Allowances Operating Expenses Inventory CASH DISBURSEMENTS $15,251 $0 $270,100 $0 Other Cash Receipts TOTAL CASH RECEIPTS $0 $0 $5,000 $255,000 Equity Capital Investments $0 $0 $15,251 $0 $15,251 FEBRUARY Total Cash from Financing $0 $250,000 Interest Income Loan Proceeds Income from Financing $15,100 $0 Total Cash from Sales $15,100 Collections JANUARY Cash Sales Income from Sales CASH RECEIPTS CASH FLOW 2011 MOBILE SLAUGHTER UNIT FINANCIALS: $22,004 $17,357 $15,404 $23,957 -$1,953 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $15,404 $0 $0 $0 $0 $0 $15,404 $0 $15,404 MARCH $20,205 $17,357 $15,558 $22,004 -$1,799 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $15,558 $0 $0 $0 $0 $0 $15,558 $0 $15,558 APRIL $18,561 $17,357 $15,713 $20,205 -$1,644 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $15,713 $0 $0 $0 $0 $0 $15,713 $0 $15,713 MAY $17,075 $17,357 $15,870 $18,561 -$1,487 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $15,870 $0 $0 $0 $0 $0 $15,870 $0 $15,870 JUNE $15,747 $17,357 $16,029 $17,075 -$1,328 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $16,029 $0 $0 $0 $0 $0 $16,029 $0 $16,029 JULY $14,579 $17,357 $16,189 $15,747 -$1,168 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $16,189 $0 $0 $0 $0 $0 $16,189 $0 $16,189 AUGUST $13,574 $17,357 $16,351 $14,579 -$1,006 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $16,351 $0 $0 $0 $0 $0 $16,351 $0 $16,351 SEPTEMBER $12,732 $17,357 $16,515 $13,574 -$842 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $16,515 $0 $0 $0 $0 $0 $16,515 $0 $16,515 OCTOBER $12,055 $17,357 $16,680 $12,732 -$677 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $16,680 $0 $0 $0 $0 $0 $16,680 $0 $16,680 NOVEMBER $11,545 $17,357 $16,847 $12,055 -$510 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $16,847 $0 $0 $0 $0 $0 $16,847 $0 $16,847 DECEMBER $11,545 $6,545 $439,961 $0 $0 $0 $92,631 $231,680 $0 $115,650 $0 $446,506 $0 $255,000 $5,000 $250,000 $0 $191,506 $0 $191,506 TOTAL SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS MOBILE SLAUGHTER UNIT FINANCIALS: CASH FLOW 2011 29 30 $0 $0 $0 Equity capital investments Total cash from financing Other cash receipts $0 $0 Small Meat Processors Business Planning Guidebook $0 $17,357 $17,357 $18,715 Cash Disbursements ENDING CASH BALANCE $11,031 $17,185 $17,015 $11,203 $19,057 -$172 Cash Receipts -$342 Opening cash balance NET CASH FLOW $17,357 $0 TOTAL CASH DISBURSEMENTS $17,357 $0 Investor Dividend Payments Owner's Draw $0 $0 $0 $7,719 $7,719 Loan Payments Income Tax Payments $0 $0 $0 $0 $9,638 Commissions/Returns and Allowances $9,638 $17,185 $0 $0 $0 $0 $0 $17,185 $0 $17,185 FEBRUARY Capital Purchases Operating expenses Inventory CASH DISBURSEMENTS $17,015 $0 Loan proceeds TOTAL CASH RECEIPTS $0 Interest income Income from financing $17,015 $0 Total cash from sales $17,015 Cash sales JANUARY Collections Income from sales CASH RECEIPTS CASH FLOW 2012 MOBILE SLAUGHTER UNIT FINANCIALS: $11,032 $17,357 $17,357 $11,031 $0 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $17,357 $0 $0 $0 $0 $0 $17,357 $0 $17,357 MARCH $11,205 $17,357 $17,531 $11,032 $174 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $17,531 $0 $0 $0 $0 $0 $17,531 $0 $17,531 APRIL $11,555 $17,357 $17,706 $11,205 $349 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $17,706 $0 $0 $0 $0 $0 $17,706 $0 $17,706 MAY $12,081 $17,357 $17,883 $11,555 $526 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $17,883 $0 $0 $0 $0 $0 $17,883 $0 $17,883 JUNE $12,786 $17,357 $18,062 $12,081 $705 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $18,062 $0 $0 $0 $0 $0 $18,062 $0 $18,062 JULY $13,671 $17,357 $18,242 $12,786 $886 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $18,242 $0 $0 $0 $0 $0 $18,242 $0 $18,242 AUGUST $14,740 $17,357 $18,425 $13,671 $1,068 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $18,425 $0 $0 $0 $0 $0 $18,425 $0 $18,425 SEPTEMBER $15,992 $17,357 $18,609 $14,740 $1,252 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $18,609 $0 $0 $0 $0 $0 $18,609 $0 $18,609 OCTOBER $17,430 $17,357 $18,795 $15,992 $1,438 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $18,795 $0 $0 $0 $0 $0 $18,795 $0 $18,795 NOVEMBER $19,057 $17,357 $18,983 $17,430 $1,626 $17,357 $0 $0 $0 $7,719 $0 $0 $9,638 $0 $18,983 $0 $0 $0 $0 $0 $18,983 $0 $18,983 DECEMBER $19,057 $7,512 $208,281 $0 $0 $0 $92,631 $0 $0 $115,650 $0 $215,794 $0 $0 $0 $0 $0 $215,794 $0 $215,794 TOTAL SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS MOBILE SLAUGHTER UNIT FINANCIALS: CASH FLOW 2012 $0 $0 $0 $58,096 Equity capital investments Total cash from financing OTHER CASH RECEIPTS TOTAL CASH RECEIPTS $0 $0 Owner's Draw $19,057 $58,096 $52,070 $25,083 Cash Receipts Cash Disbursements ENDING CASH BALANCE $6,026 Opening Cash Balance NET CASH FLOW $52,070 $0 Investor Dividend Payments TOTAL CASH DISBURSEMENTS $0 Income Tax Payments $23,158 Capital Purchases Loan Payments $0 $28,913 Commissions/Returns and Allowances Operating expenses Inventory $0 $0 Loan proceeds CASH DISBURSEMENTS $0 Interest income Income from Financing $58,096 $0 TOTAL CASH FROM SALES $58,096 Collections 1ST QUARTER Cash Sales Income from Sales CASH RECEIPTS CASH FLOW 2013 AND 2014 MOBILE SLAUGHTER UNIT FINANCIALS: $32,869 $52,070 $59,856 $25,083 $7,786 $52,070 $0 $0 $0 $23,158 $0 $0 $28,913 $0 $59,856 $0 $0 $0 $0 $0 $59,856 $0 $59,856 2ND QUARTER $42,468 $52,070 $61,670 $32,869 $9,600 $52,070 $0 $0 $0 $23,158 $0 $0 $28,913 $0 $61,670 $0 $0 $0 $0 $0 $61,670 $0 $61,670 3RD QUARTER $53,937 $52,070 $63,539 $42,468 $11,469 $52,070 $0 $0 $0 $23,158 $0 $0 $28,913 $0 $63,539 $0 $0 $0 $0 $0 $63,539 $0 $63,539 4TH QUARTER $53,937 $34,880 $208,281 $0 $0 $0 $92,631 $0 $0 $115,650 $0 $243,162 $0 $0 $0 $0 $0 $243,162 $0 $243,162 TOTAL $98,088 $28,913 $73,063 $53,937 $44,151 $28,913 $0 $0 $0 $0 $0 $0 $28,913 $0 $73,063 $0 $0 $0 $0 $0 $73,063 $0 $73,063 1ST QUARTER $143,946 $28,913 $74,770 $98,088 $45,858 $28,913 $0 $0 $0 $0 $0 $0 $28,913 $0 $74,770 $0 $0 $0 $0 $0 $74,770 $0 $74,770 2ND QUARTER $191,527 $28,913 $76,494 $143,946 $47,581 $28,913 $0 $0 $0 $0 $0 $0 $28,913 $0 $76,494 $0 $0 $0 $0 $0 $76,494 $0 $76,494 3RD QUARTER $240,848 $28,913 $78,234 $191,527 $49,321 $28,913 $0 $0 $0 $0 $0 $0 $28,913 $0 $78,234 $0 $0 $0 $0 $0 $78,234 $0 $78,234 4TH QUARTER $240,848 $186,911 $115,650 $0 $0 $0 $0 $0 $0 $115,650 $0 $302,561 $0 $0 $0 $0 $0 $302,561 $0 $302,561 TOTAL SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS MOBILE SLAUGHTER UNIT FINANCIALS: CASH FLOW 2013 AND 2014 31 32 $15,100 GROSS PROFIT Small Meat Processors Business Planning Guidebook $100 NET PROFIT $2,234 $745 $2,979 Net income before taxes Provision for taxes on income $12,121 $100 TOTAL EXPENSES $500 DMV $2,375 $792 $3,167 $12,084 $100 $500 $1,422 $100 $1,458 $1,000 $0 $50 $0 $100 $200 $1,025 $1,000 $0 $50 Gut disposal Interest on loans Supplies Fuel Postage and shipping Office supplies $0 $100 Telephone service Utilities $200 $1,025 Insurance Depreciation $600 $25 $25 $600 BIT program Maintenance $0 $0 Rent $0 $63 $63 $0 Professional services Marketing and advertising $900 $0 $6,000 $15,251 $15,251 FEBRUARY $900 $0 Employee benefits Payroll taxes $6,000 Salaries and wages EXPENSES General and Administrative $15,100 JANUARY Gross Sales INCOME INCOME STATEMENT 2011 MOBILE SLAUGHTER UNIT FINANCIALS: $2,517 $839 $3,356 $12,048 $100 $500 $1,385 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $15,404 $15,404 MARCH APRIL $2,660 $887 $3,547 $12,011 $100 $500 $1,348 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $15,558 $15,558 MAY $2,805 $935 $3,740 $11,973 $100 $500 $1,311 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $15,713 $15,713 JUNE $2,951 $984 $3,934 $11,936 $100 $500 $1,274 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $15,870 $15,870 JULY $3,098 $1,033 $4,130 $11,898 $100 $500 $1,236 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $16,029 $16,029 $3,246 $1,082 $4,329 $11,861 $100 $500 $1,198 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $16,189 $16,189 AUGUST $3,396 $1,132 $4,529 $11,823 $100 $500 $1,160 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $16,351 $16,351 SEPTEMBER $3,548 $1,183 $4,730 $11,784 $100 $500 $1,122 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $16,515 $16,515 OCTOBER $3,700 $1,233 $4,934 $11,746 $100 $500 $1,083 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $16,680 $16,680 NOVEMBER $3,855 $1,285 $5,139 $11,707 $100 $500 $1,045 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $16,847 $16,847 DECEMBER INCOME $36,385 $12,128 $48,514 $142,992 $1,200 $6,000 $15,042 $1,200 $12,000 $0 $600 $0 $1,200 $2,400 $12,300 $7,200 $300 $0 $0 $750 $10,800 $0 $72,000 $191,506 $191,506 SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS MOBILE SLAUGHTER UNIT FINANCIALS: INCOME STATEMENT 2011 $17,015 GROSS PROFIT $5,347 $1,337 $4,010 Net income before taxes Provision for taxes on income NET PROFIT $100 $11,668 DMV TOTAL EXPENSES $500 $1,006 $100 $1,000 $0 $50 Gut disposal Interest on loans Supplies Fuel Postage and shipping Office supplies $0 $100 Utilities $200 Depreciation Telephone service $600 $1,025 Maintenance Insurance $25 $0 Rent BIT program $0 $63 Marketing and advertising Professional services $900 $0 Employee benefits Payroll taxes $6,000 Salaries and wages EXPENSES General and Administrative $17,015 JANUARY Gross Sales INCOME INCOME STATEMENT 2012 MOBILE SLAUGHTER UNIT FINANCIALS: $4,167 $1,389 $5,556 $11,629 $100 $500 $967 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $17,185 $17,185 FEBRUARY $4,326 $1,442 $5,767 $11,590 $100 $500 $927 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $17,357 $17,357 MARCH APRIL $4,485 $1,495 $5,981 $11,550 $100 $500 $888 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $17,531 $17,531 MAY $4,647 $1,549 $6,196 $11,510 $100 $500 $848 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $17,706 $17,706 JUNE $4,810 $1,603 $6,413 $11,470 $100 $500 $808 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $17,883 $17,883 JULY $4,974 $1,658 $6,632 $11,430 $100 $500 $767 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $18,062 $18,062 $5,140 $1,713 $6,853 $11,389 $100 $500 $727 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $18,242 $18,242 AUGUST $5,307 $1,769 $7,076 $11,348 $100 $500 $686 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $18,425 $18,425 SEPTEMBER $5,476 $1,825 $7,302 $11,307 $100 $500 $645 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $18,609 $18,609 OCTOBER $5,647 $1,882 $7,529 $11,266 $100 $500 $604 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $18,795 $18,795 NOVEMBER $5,819 $1,940 $7,759 $11,225 $100 $500 $562 $100 $1,000 $0 $50 $0 $100 $200 $1,025 $600 $25 $0 $0 $63 $900 $0 $6,000 $18,983 $18,983 DECEMBER TOTAL $58,808 $19,603 $78,410 $137,383 $1,200 $6,000 $9,433 $1,200 $12,000 $0 $600 $0 $1,200 $2,400 $12,300 $7,200 $300 $0 $0 $750 $10,800 $0 $72,000 $215,794 $215,794 SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS MOBILE SLAUGHTER UNIT FINANCIALS: INCOME STATEMENT 2012 33 34 $58,096 GROSS PROFIT Small Meat Processors Business Planning Guidebook $6,168 Provision for taxes on income $18,505 $24,674 NET PROFIT $33,422 Net income before taxes $300 TOTAL EXPENSES DMV $1,500 Gut disposal $300 $20,112 $6,704 $26,816 $33,040 $300 $1,500 $1,053 $300 $1,435 $3,000 $0 $150 $0 $300 $600 $3,075 $3,000 $0 $150 Interest on loans Supplies Fuel Postage and shipping Office supplies $0 $300 Telephone service Utilities $600 $3,075 Insurance Depreciation $1,800 $75 $75 $1,800 BIT program Maintenance $0 $0 $0 $0 $188 Marketing and advertising $188 $2,700 $0 $18,000 $59,856 $59,856 2ND QUARTER Rent Professional services $2,700 $0 Employee benefits Payroll taxes $18,000 Salaries and wages EXPENSES General and Administrative $58,096 1ST QUARTER Gross Sales INCOME INCOME STATEMENT 2013 AND 2014 MOBILE SLAUGHTER UNIT FINANCIALS: $21,764 $7,255 $29,019 $32,651 $300 $1,500 $664 $300 $3,000 $0 $150 $0 $300 $600 $3,075 $1,800 $75 $0 $0 $188 $2,700 $0 $18,000 $61,670 $61,670 3RD QUARTER $23,463 $7,821 $31,284 $32,255 $300 $1,500 $268 $300 $3,000 $0 $150 $0 $300 $600 $3,075 $1,800 $75 $0 $0 $188 $2,700 $0 $18,000 $63,539 $63,539 4TH QUARTER $83,845 $27,948 $111,793 $131,369 $1,200 $6,000 $3,419 $1,200 $12,000 $0 $600 $0 $1,200 $2,400 $12,300 $7,200 $300 $0 $0 $750 $10,800 $0 $72,000 $243,162 $243,162 TOTAL $30,807 $10,269 $41,076 $31,988 $300 $1,500 $0 $300 $3,000 $0 $150 $0 $300 $600 $3,075 $1,800 $75 $0 $0 $188 $2,700 $0 $18,000 $73,063 $73,063 1ST QUARTER $32,087 $10,696 $42,783 $31,988 $300 $1,500 $0 $300 $3,000 $0 $150 $0 $300 $600 $3,075 $1,800 $75 $0 $0 $188 $2,700 $0 $18,000 $74,770 $74,770 2ND QUARTER $33,380 $11,127 $44,506 $31,988 $300 $1,500 $0 $300 $3,000 $0 $150 $0 $300 $600 $3,075 $1,800 $75 $0 $0 $188 $2,700 $0 $18,000 $76,494 $76,494 3RD QUARTER $34,685 $11,562 $46,246 $31,988 $300 $1,500 $0 $300 $3,000 $0 $150 $0 $300 $600 $3,075 $1,800 $75 $0 $0 $188 $2,700 $0 $18,000 $78,234 $78,234 4TH QUARTER $130,958 $43,653 $174,611 $127,950 $1,200 $6,000 $0 $1,200 $12,000 $0 $600 $0 $1,200 $2,400 $12,300 $7,200 $300 $0 $0 $750 $10,800 $0 $72,000 $302,561 $302,561 TOTAL SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS MOBILE SLAUGHTER UNIT FINANCIALS: INCOME STATEMENT 2013 AND 2014 SECTION 3вЂ”CONSIDERATIONS FOR OTHER PLANT CONFIGURATIONS MOBILE SLAUGHTER UNIT: FINANCIAL ASSUMPTIONS AND EXPLANATIONS Sales Projections Unit Volume is based on the number of animals that can be processed through the unit with two full-time butchers in an eight-hour period, 260 workdays per year. Capital Purchases Cost based on current estimates. Truck is used. Miscellaneous equipment includes saws, cradle, rail rollers and trees, stun gun and ammo, sanitation equipment, USDA file box, hide tags, first aid kit, safety equipment, and Hudson sprayers. Laptop and data logger are for monitoring temperatures for HACCP. Staff Budget Based on U.S. Bureau of Labor Statistics employment estimate and mean wage estimates for this occupation most recently dated May 2009: www.bls.gov Industry: Animal Slaughtering and Processing Hourly mean wage = $12.95 Annual mean wage = $26,930 MSU butchers require a commercial driverвЂ™s license, hence the increase in salary base in these projections Payroll expense =15% Professional Services Only organic certification services have been added to this pro forma. If the MSU is running as an addition to a cut and wrap facility, legal, accounting, and other consultants would be included in that facilityвЂ™s costs. If a MSU is running as a stand-alone business, these services would be added. Capital Investment Investment capital could come from multiple owners of an MSU or an individual cut and wrap facility business owner. Equipment financing is generally easier to obtain then general lines of credit, simply because the equipment you buy serves as direct collateral for the loan. ItвЂ™s also less risky, in that if you are unable to make your payments, you donвЂ™t have a lien against your entire business or your personal real estate: all you lose is the equipment you bought. The debt-to-equity ratio is an often-used rule of thumb for lenders; total debt should be no more than three or four times the equity. Profit/Loss Provisions for taxes on income are based on 25 percent. Cash Flow The end of the first quarter in the second year a positive cash flow is possible. 35 SECTION 4вЂ”BUSINESS PLANNING ASSISTANCE/RESOURCES SECTION 4вЂ”Business Planning Assistance/Resources Many business planning guidebooks and courses are available to coach you through the steps of writing your own plan. An Internet search for вЂњbusiness planning guideвЂќ will kick up more than 100,000 hits. DonвЂ™t spend all your limited business planning time online looking at websites. But here are a few you might find useful, especially if they lead you to a real person with business planning expertise and experience who can review your plan objectively. Small Business Administration вЂ“ www.sba.gov The SBA is a federal agency with local offices around the country. The people in the office nearest you may or may not know anything about meat processing, but they can help walk you through the planning process, and review your plan. Sometimes it helps to have an experienced business planning professional ask you the right questions. And SBA has many web-based tools, for example, the вЂњSmall Business PlannerвЂќ: www.sba.gov/smallbusinessplanner/index.html. Two SBA-related groups that regularly work with business planning are: Service Corps of Retired Executives (SCORE) вЂ“ www.score.org SCORE is a nonprofit organization funded by SBA to provide counseling and training to small businesses, for free. SCORE volunteers are successful, retired businessmen and women. There are SCORE chapters in every state. Find yours on their website. Small Business Development Centers (SBDC) www.sba.gov/aboutsba/sbaprograms/sbdc/index.html SBDCs are a cooperative effort by the SBA with state and local partners to support small businesses and their growth. As with most вЂњfreeвЂќ help, some staffers are better than others. So if one place or person doesnвЂ™t seem like a good fit for you, try another. Some SBDCs may charge a small fee for certain services or help after a certain number of hours. Be sure to ask. Agricultural Marketing Resource Center www.agmrc.org/business_development/starting_a_business Keep in mind that many states have business development assistance offices, and some state agriculture departments have business development experts on staff. University Cooperative Extension The university cooperative extension service in your state may include expertise in business planning and development. To see if your state has a similar resource, go to www.extension.org and click on вЂњLocal Extension Offices Near YouвЂќ near the top of the page. Three examples listed at the right are: 36 Small Meat Processors Business Planning Guidebook Pennsylvania State University Extension Ag Entrepreneurship extension.psu.edu/farm-business Cornell University Northeast Center for Food Entrepreneurship (see Small Scale Food Entrepreneurship guidebook) www.nysaes.cornell.edu/necfe/pubs/booklet.html University of Nebraska вЂ“ Lincoln Food Processing Center http://fpc.unl.edu SECTION 5вЂ”A FINAL WORD SECTION 5вЂ”A Final Word This short guide has touched briefly on many topics вЂ” from corporate finance to business development to communications вЂ” in relatively few pages. It was written for a broad audience: processors, producers, community groups, and others; existing businesses and start-ups; private corporations, non-profit organizations, and cooperatives; mobile units and stationary plants. All of these will begin the business planning process from a somewhat different place, in different circumstances, and with different experiences and visions. If you are planning a new or expanded meat processing business, think through the following questions with site- and situation-specific detail. This will help you consider if the apparent business opportunity is real and worth pursuing. What are the costs of and profit from every activity in the value chain for meat processing вЂ” starting with transport of the live animal to the facility, through slaughter, hanging, cut and wrap, dry aging, and valueadded production (e.g., sausage/smoking), through to marketing, sales, and distribution? It is worth noting that some business planning experts suggest that focusing on overall operating expense and profits rather than looking at each operation is more relevant to overall profitability, but the step-by-step analysis can help you identify the more or less challenging spots in your chain. What are the unmet needs of everyone in that chain, including the farmer? Based on those needs, what are the business opportunities? Even if one part of the chain is inconvenient (by location or cost), it still may not be a profitable and sustainable business opportunity for farmers or other entrepreneurs. (And a two-hour drive to processing will almost always be much more cost-effective than building a new processing facility.) Even a very small processor needs about 400 head of beef (or equivalent revenue) per year to stay solvent. You donвЂ™t need to have all 400 head lined up the day you break ground, but you must have a clear plan to get there sooner rather than later (by year two, certainly). If a legitimate business opportunity really exists, what are the alternative models of ownership? What liabilities are associated with each? What are the financial requirements and potential solutions (e.g., debt vs. equity vs. grants vs. hybrids)? Nothing can guarantee success. A written business plan is only one element of a successful business venture. But those who fail to plan, plan to fail. This guide can help you plan for a successful and robust meat processing business. вЂ¦ and justice for all The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, age, disability, and where applicable, sex, marital status, familial status, parental status, religion, sexual orientation, genetic information, political beliefs, reprisal, or because all or part of an individualвЂ™s income is derived from any public assistance program. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USDAвЂ™s TARGET Center at 202-720-2600 (voice and TDD). To file a complaint of discrimination, write to USDA, Director, Office of Civil Rights, 1400 Independence Avenue SW, Washington, DC 20250-9410, or call 800-795-3272 (voice) or 202-720-6382 (TDD). USDA is an equal opportunity provider and employer. 37